Why are so many seniors still working?

Dennis Miller is the author of “Retirement Reboot," a book chronicling his
own journey to save his retirement in a low yield, turbulent investing
environment. He works with some of the country’s top investment managers,
authors and analysts to tackle the financial challenges faced by today’s
retirees. Prior to retiring in 2008 Dennis ran a successful consulting business
and authored several books on sales management. He was also a regular
contributor to the American Management Association and an active international
lecturer for 40 years. Dennis is featured regularly on several retirement blogs
and is a frequent guest on radio shows throughout the country. You can track his
exploits at Miller on the Money and on Twitter @DMonthemoney,
or contact him at
milleronthemoney@gmail.com.

Go into any fast food restaurant or retail store and you’ll find a lot of seniors working for minimum wage. Here’s why.

When personal computers hit the scene, numerous retirement-planning programs quickly became available. You entered your personal financial information, along with yield and inflation projections, and the computer would tell you how long your retirement nest egg would last.

The first time I ran the numbers, my computer told me I had enough money to retire as long as I died before I was 72. That's when my wife and I got serious about saving for retirement.

For years, financial planners considered four basic numbers to be conservative estimates:

Return on your portfolio: 6%.

Inflation: 2%.

Age your money needs to last to: 120 years old.

Percentage of your portfolio to invest outside of CDs and high-quality bonds: 100 minus your age at retirement.

The final number on the list was part of a conservative investment formula. If you retired at age 65, then 65% of your nest egg went into CDs and high-quality bonds, with a 6% locked-in return. The other 35% went into the market. I can confirm that the formula worked well for my first few years of retirement.

To keep the math simple, imagine a couple with a $1 million portfolio and $20,000 in combined annual Social Security payments. A 6% return on their entire portfolio ($60,000), combined with Social Security, gave them $80,000 to live on every year.

These numbers no longer apply. The best CD rate I can find these days is 1.2%. And while the Bureau of Labor Statistics reported a 1.7% inflation rate for December 2012, I'm confident that the 1990-based alternate rate reported by Shadow Government Statistics — just under 6% — is much more accurate.

Let's revisit the imaginary couple with a $1 million portfolio. If they put 65% of their portfolio in CDs earning 1.2%, that gives them $7,800. Even if the remaining 35% of their portfolio earns a 6% yield in the market ($21,000), combined with their $20,000 in Social Security, that's only $48,800 every year. That's quite a downward adjustment in their standard of living! And at the same time, inflation is driving prices up, which only amplifies the problem.

So what is a senior to do?

There is no one, simple answer. First, we cannot ignore the problem. While there is no shame in a hard day's work, no retiree wants to spend his golden years stocking Cheerios at Wal-Mart. No matter what your first profession was, you need to become your own amateur financial guru.

Second, we all have to put a much higher percentage of our life savings in riskier investments to compensate for low interest rates. Many seniors are also looking to reverse mortgages and annuities for some relief. While neither of these are a sure fix for all of your financial woes, they are partial solutions for some retirees.

Third, many seniors are scaling back even more than they already have. Cutting your living expenses and shifting your expectations about retirement can be emotionally difficult. If you were the household breadwinner, this can be particularly draining. While some common sense adjustments are easy, like swapping a $4 latte for a regular cup of Joe, others are more taxing. No one wants things to get so bad that they must give up traveling to see their grandkids.

And when none of these changes are enough, many seniors are continuing to work longer than planned. I recently read that:

In May 2012, the Transamerica Center for Retirement Studies released its 13th annual retirement survey. A survey of over 3,600 workers showed that 56% plan to work after age 65, and 54% indicated they would continue working after they retire. The lead paragraph of the news release states, "American workers, shaken by the realities of the Great Recession, have adjusted their visions of retirement..."

The simple, mathematical retirement formula of yesteryear is long gone. Would-be retirees are chasing a moving target. Investors must be prudent, conservative, and still find investments that yield enough to adequately supplement their Social Security checks.

The only conservative number that survived the old regime is "120 years old." If you run out of money at 119, don't worry about it; you will be the envy of all your peers.

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